DEBT AND OTHER LONG-TERM OBLIGATIONS
|9 Months Ended|
May 31, 2022
|DEBT AND OTHER LONG-TERM OBLIGATIONS [Abstract]|
|DEBT AND OTHER LONG-TERM OBLIGATIONS||
NOTE 6 – DEBT AND OTHER LONG-TERM OBLIGATIONS
Single-Family Rental Home Note Payable
On November 29, 2021, PCY Holdings, LLC, a wholly owned subsidiary of the Company, entered a Promissory Note (SFR Note) with its primary bank to reimburse amounts expended for the construction of the first three single-family rental units. The SFR note has the following terms:
The scheduled maturities of the SFR Note for each of the twelve-month periods ending May 31 are as follows (in thousands):
The Company is working with its primary bank to provide similar financing for the fourth rental home currently under construction as well as the ten homes contracted for in Phase 2A. As of May 31, 2022, neither of these loans have been finalized.
Working Capital Line of Credit
On January 31, 2022, the Company entered into a Business Loan Agreement (Working Capital LOC) with its primary bank to provide a $5.0 million operating line of credit. The Working Capital LOC has a two-year maturity, monthly interest only payments if the line is drawn upon with unpaid principal and interest due at maturity, and a floating per annum interest rate equal to the Wall Street Journal Prime Rate plus 0.5% (4.5% as of May 31, 2022), which has a floor of 3.75%. In the event of default, the interest rate on the Working Capital LOC would be increased by adding an additional 2.0%. As of May 31, 2022, the Company has not drawn on the Working Capital LOC.
Lot Construction Obligations
In October 2020, November 2020, and February 2021, the Company entered separate contracts with KB Home, Melody (a DR Horton Company), Challenger Homes, and Lennar Colorado, LLC to sell 804 single-family attached and detached residential lots at Sky Ranch. This is the second development phase of Sky Ranch which incorporates approximately 250 acres, will be completed in four sub-phases as noted above referred to as Phases 2A, 2B, 2C and 2D, and is platted to include a total of 850 residential lots. The 46 lots not currently
under contract to home builders are being retained for use in the Company’s single-family rental business. Pursuant to the contracts with the homebuilders, the Company and the Sky Ranch CAB are obligated to complete all construction activities required to deliver finished lots (i.e., lots ready for home construction) to the builders, including but not limited to grading, construction of wet and dry utilities, streets, curbs, and landscaping.
In February 2021, the Company began construction on Phase 2A at Sky Ranch, which includes a total of 229 lots, ten of which are being retained for use in the single-family rental business, and 219 of which are sold under contracts to the four homebuilders listed above. As of May 31, 2022, the Company had received plats for all 229 lots, had substantially completed grading and wet utilities, and had completed roughly half the streets, sidewalks, and dry utilities. As of May 31, 2022, the Company has delivered 40 finished lots to the homebuilders and expects to deliver the remaining 189 completed lots to the homebuilders during the summer of 2022. From the start of the second development phase through May 31, 2022, the Company has spent $13.6 million on construction activities in the second development phase, of which $11.3 million was for public improvements which the Company believes it will be reimbursed by the Sky Ranch CAB. In the next eighteen months, the Company anticipates spending an additional $6.8 million to complete all required infrastructure for the 229 finished lots, including the ten lots for the single-family rental business, which is the entirety of Phase 2A. Of this, $5.6 million is estimated to be for public improvements which the Company believes will be reimbursed by the Sky Ranch CAB.
The Company believes it will take a total of three years to complete construction for all 850 lots included in the second development phase, sell the 804 finished lots, and complete 46 lots for the Company’s single family rental business depending on the market conditions and permitting process.
As described in Note 3 above, the Company entered into a development agreement with a charter school operator, which includes requirements to construct, or have constructed, various defined off-site improvements, which will provide access and drainage to the school and the overall Sky Ranch development. The Company, as part of its overall master development plan for Sky Ranch, expected to build this infrastructure whether the school site was located at this location or not, so this does not change its overall cost projections for the master planned community. The Company believes it will spend $4.0 million for the infrastructure defined in the development agreement, which it believes will qualify as public improvements and be reimbursable by the Sky Ranch CAB.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef